Regarding the PPP and ERC: That said we discussed two scenarios this morning.
The first was a restaurant that opened up in November 2019 and their PPP 2nd draw has been rejected by BOA, Stride and Liberty banks. These banks cited SBA guidance that says if you opened in 2019 that you use the receipts you received during 2019 and compare them to 2020. The restaurant was only open for 53 days in 2019 and for all quarters in 2020 the receipts were in excess of the amount of receipts taken in for the short period in 4th quarter of 2019, SBA guidelines say nothing about prorating the receipts for the full quarter. However, in a similar situation, for ERC purposes the IRS allows you to prorate the business’ receipts . Alan is looking for further guidance on the discrepancy between the two programs and whether the SBA will give us some leeway.
In regard to qualifying for ERC the two safe harbors are for 2021 a 20% reduction and for 2020 a 50% reduction in receipts or a full or partial suspension of their business operations due to a “governmental” order. The particular case we were looking at is a podiatry office that did not meet the 50% reduction for 2020 but has been advise by their payroll company that they qualify due to a partial suspension of their business operations. SBA guidance clearly states that this safe harbor only applies for the period that the governmental order was in place
Except for a period in March and April, the podiatry office was open. It had implemented a policy of more social distancing and used more stringent sanitary procedures which may have reduced its billing. The questions are does this constitutes a “partial” suspension and it was due to a “governmental” order. Of course we will need to research to see whether any of the various governmental levels (federal, state or county) issued an “order” restricting the practices operations. Two things he was clear on though was that an order to social distance is not by itself sufficient to constitute a partial or full suspension of business operations and that guidance by a non-governmental entity, such as the AMA, does not qualify.
As you can see we now have more questions than answers. Before we complete or assist in completing our clients in preparing a 941 or 941X ERC we need to establish that either safe harbor was established and it is best if everyone reviews the situation with someone else in the firm.